Does the Sri Lankan Economy Need More University Graduates?

April 11, 2018

By Ljubica Nedelkoska, Tim O’Brien and Daniel Stock

Sri Lanka has exceptionally low rates of tertiary education admission and graduation for its level of economic development. Many have identified this as a roadblock to Sri Lanka’s economic competitiveness. Using six years of Sri Lanka’s Labor Force Survey, we study the evidence of shortages of tertiary educated workers. Our analysis casts doubt on the existence of a general shortage of university graduates in spite of the low university admission and graduation rates.

We find that the majority (77%) of university graduates are employed by the public sector (government and semi-government), where they enjoy job security and other benefits but earn wages that are only a fraction of what is paid in the private sector. On average, college graduates in the private sector earn 1.6 times higher wages than college graduates in the public sector. Moreover, the wages of college graduates in the public sector are only between a quarter and a third higher than those of A-level graduates in the same sector. A minority (23%) of college graduates are employed by the private sector, where they earn significantly more than those with only A-levels – 66% in the case of men and 128% more in the case of women.

These very high wage premiums in the private sector, combined with very low unemployment rates of college graduates, suggest shortages of particular types of tertiary education. This seems to be the case with ICT professionals and ICT technicians, business professionals, science and engineering professionals, and various managerial occupations. This suggests that education policy should focus on addressing the shortages in these areas, as opposed to expanding tertiary education more generally. A general expansion of higher education without a focus on these fields could actually further lower the already low returns to a tertiary degree in the public sector, without addressing any issues of Sri Lanka’s economic competitiveness.